Cooperation with Regional Players

Many MFIs in Germany cooperate with regional partners like

• banks and Saving Banks
• institutions promoting trade and industry
• job centers, municipalities, and other employment agencies
• foundations and sponsors
• investment promotion agencies run by the states
•  state ministries

These cooperations are useful since the MFIs assume public and social duties and therefore they have common goals. Examples of supporting a MFI can be:

• word of mouth propaganda
• financing the set-up of the MFI
• financing the operational costs of the MFI
• providing capital for the MFI (20% of the outstanding loan portfolio that serves as collateral for the GLS Bank)
• supporting product development for specific target groups

In order to have a benefit from the cooperations mentioned above, it is recommended to combine the various forms. For example:

• the investment promotion agency provides 20% of the outstanding loan portfolio.
• in addition to the local loan disbursement the municipalities, the Saving Banks, the Cooperative Banks and other sponsors provide an amount of money that serves as collateral for the bank.
• the Ministry of Economics and Technology finances the training of the loan officers as well as the credit analysis and market studies
• jobcenters bear the risk of loan losses for their clients
• Saving Banks and Cooperative Banks channel microloan requests to the MFI.

Microfinance is a very effective instrument with various leverage effects and therefore the advantages for the partners are obvious:

• the loan losses and therefore the costs are much smaller compared to the common promotional programmes.
• independent regional funds have to raise 100% of the loan funds in order to operate. In a cooperation with the Mikrokreditfonds Deutschland only 20% (with the perspective of reduction) of collateral has to be provided.
• no regional administrative machinery has to be established. The GLS Bank administrates the Mikrokreditfunds Deutschland centrally and guarantees the quality and reporting standards.
• the target group can make use of existing promotional and consulting programmes – this is less costly and provides the possibility of being close to the target group.
• banks and Saving Banks can offer new solutions to their clients and raise their reputation in the region.

Therefore, regional cooperation is highly recommended. Yet, there are also those german MFIs which started its operations only on the basis of voluntary work and with capital raised from social entrepreneurs. In the end, the success most strongly depends on the commitment of an organization to develop microfinance as a sustainable business model.